The poor are least likely to benefit from switching

An analysis of switching activity reveals that people living in the most deprived parts of the country are the least likely to switch, despite having most to gain. Gavin Jones asks why this might be.

Government and industry are spending a lot of customers’ money on improving the change of supply process. It is, for instance, a manifesto commitment of this government to implement next-day switching. With all this money being spent, it is important to understand if the benefits are being shared equally. Back in October 2014, then energy secretary Ed Davey said: “I worry it is the internet-savvy who benefit from switching – the ‘well-heeled’.”

To find out how the market is supporting different parts of the country, ElectraLink used its visibility of all the electricity change-of-supply events across the country to investigate whether increased retail activity is dispersed among all communities equally.

Analysis of data transfer service (DTS) data is usually used by ElectraLink to provide individual energy suppliers with insight into their performance versus the market – and detailed information to enable them to better design and target their product offerings – but in this case ElectraLink compared switching activity with the government’s deprivation index, which maps areas of the country to their levels of deprivation.

The bad news is that the analysis shows that Ed Davey’s concerns are borne out by the data. Those in the most deprived areas are least active in the market. In an average month there are 14 per cent more customers switching in the least deprived 20 per cent of post codes versus the 20 per cent most deprived. This trend is consistent across the population, so the percentage of customers switching drops as the relative deprivation of the area rises.

As can be seen from the first graph, when there are significant price changes, for instance in October/November 2013, then all areas show increased levels of engagement, but a customer in the least deprived area is 35 per cent more likely to switch than one in the most deprived.

There will be a number of reasons for this but it is important that the benefits of programmes to improve customer switching accrue to those in most need. As it stands, this is not what appears to be happening.

One possible reason for the least deprived being most active might be that they have more to gain because their consumption is higher, for instance because they live in bigger homes and have more energy-­consuming products. ElectraLink is able to analyse electricity consumption at a property level through its insight into the information passed across the DTS as part of the settlement process. The average consumption for each property over the past 12 months in the least deprived areas was 25 per cent higher than those in the most deprived, and in general the trend is as one would expect: as you move into an area of less deprivation, the average energy consumption rises.

 In light of these figures, the proportion of household income spent on energy is much higher in the most deprived areas. According to the Office of National Statistics, household incomes in the least deprived areas of Britain were five times higher than those in the most deprived in 2007/08, and yet our analysis shows that energy consumption was only 1.25 times higher. The positive side of this is that the benefit in terms of the proportion of household income that could be released by having the best energy deal for the most deprived would be higher than the proportion released for the least deprived.

As can be seen from the graphs, the most deprived areas actually have a higher energy usage than those in the slightly less deprived areas. The reasons for this could include poorer housing stock, the higher cost of accessing energy-efficient products, and more time spent at home through unemployment. The corollary is that there may well be scope to reduce energy usage by better advice and information, which the rollout of smart meters should help to address.

What this analysis shows is that it is crucial the impact of these programmes is properly monitored so the results can be determined quickly. We need to see how the programmes have benefited those who are their main targets, so that policies can be reinforced or amended as appropriate.

Gavin Jones, business development director, ElectraLink